CANADA FX DEBT-C$ falls vs U.S. dollar after remarks by Fed's Powell

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* U.S. dollar up 0.3 percent at C$1.3176
* Canada factory sales rose 1.4 percent in May from April
* Spread between the U.S. Canadian 10-year yields widens
* Canadian government bond prices higher across yield curve
(Adds new comment, updates prices)
By Gertrude Chavez-Dreyfuss
July 17 (Reuters) - The Canadian dollar dropped on Tuesday,
as the U.S. dollar rose across the board after Federal Reserve
Chairman Jerome Powell struck a bullish tone in prepared remarks
on the U.S. economy before a congressional committee.
The Canadian currency touched session lows against the
greenback following release of Powell's testimony, nearing a
two-week trough hit last week.
Powell, in testimony to the Senate Banking Committee, said
the U.S. economy is on the cusp of "several years" where the job
market remains strong and inflation stays around the Fed's 2
percent target. He discounted the risk that a trade war may
throw a global recovery off track.
"Overall, we think the Chairman struck an upbeat tone that
has been reflected in both the Fed’s economic projections and
Fed speak since the spring," said Marvin Loh, senior global
market strategist, at BNY Mellon.
"However, given that the Fed will be faced with the neutral
rate sometime in 2019, the market’s concerns over a pause, or
even an end to the hiking cycle is logical in our view.
In late trading, the U.S. dollar was up 0.3 percent against
its Canadian counterpart at C$1.3186 . So far this year,
the Canadian dollar is down 4.8 percent against a strong U.S.
currency.
The Canadian dollar was flat against the euro, which last
traded at C$1.5378 . Sterling, however, fell 0.5
percent to C$1.72978 .
The U.S. dollar, meanwhile, was up 0.5 percent against a
basket of six major currencies at 94.953 .
Data showing Canada's factory sales rose 1.4 percent in May
from April trimmed the Canadian currency's decline versus the
greenback, but that had a brief impact.
The outlook for the Canadian dollar remained negative,
analysts said, even though the Bank of Canada raised interest
rates last week for the fourth time since July 2017, as the
market has yet to fully price in the impact of global trade
tensions.
"Domestic rate expectations have softened modestly and yield
spreads have widened in a CAD-negative manner," said Eric
Theoret, currency strategist at Scotiabank in Toronto.
The spread between the U.S. 10-year Treasury and Canadian
10-year yields widened to nearly 76 basis points
on Tuesday in favor of the U.S. dollar.
Meanwhile, Canadian government bond prices were higher
across much of the yield curve.
The two-year yield was down slightly at 1.921
percent, from 1.929 percent late on Monday, while the 10-year
slipped to 2.126 percent from Monday's 2.138
percent.
(Reporting by Gertrude Chavez-Dreyfuss in New York
Editing by Nick Zieminski, Steve Orlofsky and Susan Thomas)